Yuan Traders Diverge From Senate After Exchange Rate Threats: China Credit
By Fion Li and Kyoungwha Kim - Oct 13, 2011
At a time when U.S. lawmakers are closer than ever to punishing China for having an undervalued currency, trading in Hong Kong suggests the yuan is too strong.
The currency sank as much as 1.1 percent to 6.5463 per dollar in the city yesterday, a record 2.4 percent discount to the prevailing Shanghai rate, data compiled by Bloomberg show. The yuan has traded at a discount for almost four weeks, undercutting the onshore rate by 1 percent on average, as Europe’s debt crisis spurs demand for dollars. The premium investors demand to hold China’s dollar-denominated debt instead of U.S. Treasuries widened 43 basis points in the past month to 268 basis points, based on a JPMorgan Chase & Co. index.
The Senate passed a bill on Oct. 11 that would allow sanctions on countries with misaligned exchange rates. China’s Foreign Ministry, the biggest holder of Treasuries, said the proposed legislation is “protectionism” that would put the global economy at risk. The yuan gained 18 percent in the past four years, the most among 25 emerging-market currencies.
“Global investors are seeing problems in China’s economy and it’s not sensible to accelerate appreciation now,” said Ronald Wan, a Hong Kong-based managing director at China Merchants Securities Co., a unit of the nation’s sixth-biggest bank by market value. “Advocating a stronger yuan to create jobs and help the economy might have an audience in the U.S. but it’s not convincing investors. The bill is a political gesture.”
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